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What Is the Fair Tax?

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 Don't let your money control you. Take back the reigns with smart tips from financial counselor Dave Ramsey.

That Tax Isn't Fair

Dear Dave,

What exactly is the Fair Tax, and how is it different than the system we currently have in place?

– Evan

Dear Evan,

The basic premise of the Fair Tax is that it’s immoral to tax someone’s income. If you work and make money, that money should be all yours. That may be a shocking statement in today’s socio-political climate, but I think it’s a reasonable statement. For all intents and purposes, the Fair Tax is basically a sales tax. People would only pay taxes on items they buy, except for food, basic clothing, and other kinds of necessities. This system would do away with the IRS, its massive mountain of regulations, and its thousands of employees. It would also eliminate the need for the 401(k) and Roth IRAs, because you could just save your own money.

More than anything, proponents of the Fair Tax are saying that our current method of taxation is wrong. They also believe that as much money, if not more, could be raised with a properly-implemented national sales tax as with an income tax. Keep in mind that nothing this side of Heaven is perfect. We’d see a lot of job losses if the Fair Tax system were put in place. Tax preparation services and things like that would simply cease to exist, but it would also take a lot of the politics and special interest garbage out of the system.

Some people want you to think that Fair Tax supporters are against taxes or government in any form, and that’s just not true. The rallies that have been held lately were made up largely of people who are against government waste, deficit spending and debt. In part, the income tax is designed to motivate people to do certain things the federal government wants them to do, and the rallies are also against the idea of making government the big daddy with answers to everyone’s problems.

–Dave

Stop the Allowance to Beat Debt

Dear Dave,

We’re trying very hard to get out of debt. We were wondering if it would be a good idea to put giving our kids an allowance on hold until we get everything paid off.

–Erin

Dear Erin,

Don’t stop giving them money! What you’re doing can be a great lesson for your children. But you definitely should stop calling it an allowance. In my mind, there’s a lot of victim mentality attached to that word. You’re not “allowing” anything, you’re rewarding success!

Kids should learn at an early age that money is connected to work. Even a kid who’s in kindergarten is old enough to begin doing some age-appropriate chores around the house.
We did this kind of thing in our home, with all of our kids, but we called it a commission. If they did their jobs, they got paid. If they didn’t, they didn’t get any money. It didn’t take long for them to make the connection!

–Dave

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Dave Ramsey is a nationally-syndicated radio talk show host and author of the New York Times bestselling books, Financial Peace Revisited and The Total Money Makeover. His life-changing advice in the area of personal finance helps people get out of debt, stay out of debt and build wealth that will last a lifetime and beyond.

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